Note: This post originally appeared on the Asian Trade Centre’s Talking Trade blog.
Brexit has been described as an “act of self-harm” by commentators from the President of the European Commission to the Financial Times. The adverbs sometimes differ—grievous, in some instances, unnecessary or gratuitous in others—but economists and trade experts are nearly unanimous that British citizens will be worse off following a withdrawal from the European Union.
But ask those who voted for it, and Brexit seems nothing close to that. Indeed, the very people who would seem most at risk from Brexit are those who, even following the referendum result, are most insistent that their lives will be much improved. Why is it that those probably most insulated from Brexit’s risks are most concerned about it, while those on the “front lines” maintain a wholly positive view?
Sunderland, in north-east England, is one of those cities where residents might not have buffers that could protect workers from the effects of Brexit. With the second lowest GDP per capita of any city in the UK, and having only recently recovered from the 1988 shutdown of the last shipyard, Sunderland is in many ways a testament to economic decline and change.
The 61% pro-Brexit vote in Sunderland is what happens when cities fail to recognise the ways in which the global economy has changed, and when they fail to connect the dots between the global economy and individual livelihoods at home. Though proud residents might like to spin a narrative of independence, the reality is that workers here are literally standing on the front lines of an interconnected global economy.
Ask those in Sunderland, however, and you would think Brexit was far less important than Britain losing to Iceland in the Euro Cup. The New York Times carried an article featuring a variety of perspectives from Sunderland, summarised best, perhaps, by Ken Walker, a retired construction worker.
“I don’t have any money in the stock market,” Mr. Walker, 59, said as he drank a pint of beer in a pub. “So what’s it to me?”
It came as a blessing when in 1986—two years before Sunderland’s last shipyard was closed—a Japanese car maker came to the city to set up a production plant. Nissan, a giant of the car making world, has operated a successful plant ever since, employing just shy of 7000 in Sunderland alone, and up to a thousand more in two other offices in the UK. The Nissan plant in Sunderland also supports 27,000 jobs across the UK in its supply chain.
The plant regularly produces in excess of 500,000 vehicles per year. And given that many other vehicle manufacturers operate in Britain, it should be obvious that those 500,000 cars are not purchased by Britons alone. Depending on the year, between 80 and 85 percent of cars produced by Nissan in Sunderland are sent abroad.
Those vehicles are not all being exported to booming countries in Asia. Instead, almost 60% of these exports are sent to the European Union. It is precisely because the UK receives preferential access to the EU markets that Nissan originally set up production in Sunderland.
It is figures like this that translate trade—a broad, often loaded term that invites misinformation and scaremongering—into effects on people’s lives. For when the UK does leave the EU, Nissan will face tariffs on all those exports to Europe, and will lose access to any EU-negotiated trade deals with the rest of the world.
One possible scenario is that in the event of Brexit, the UK will (at least in the short term) have to fall back on WTO trading rules and Most Favoured Nation (MFN) tariff rates into EU markets. For cars, these rates currently stand at 10%, and for trucks at 22%. Taxes and VAT rates in other countries can also be restrictive, dampening demand further even if Nissan is to gain from a reduced Pound.
Brexit is therefore not an abstract effect on businesses. For Nissan, it means under one likely optimistic scenario, an additional 10% cost to production of cars. In an industry already on the knife’s edge between profitability and loss, many firms operating in the UK will move in order to stay competitive.
And all that is if Nissan decides to put up with the uncertainty—on its own incredibly damaging to business—that will ensue perhaps for many years until the UK does formally leave. Why shouldn’t the company be proactive to protect its interests and begin shifting production to the continent—or to Asia?
Therein lies the irony. The surest way to “send jobs to China,” as the phrase goes, is not to open one’s borders, but to close them.
Nissan has already warned about the possible ramifications for its business post-Brexit. Carlos Ghosn, Nissan Chief Executive and Chairman, was quoted as saying “Our preference as a business is, of course, that the UK stays within Europe – it makes the most sense for jobs, trade and costs. For us, a position of stability is more positive than a collection of unknowns.” The company has declined to comment since the election, but rumors are swirling on the production lines.
This follows similar warnings from other car manufacturers in the UK, including Toyota and Ford, which in 2012 closed two UK plants causing the loss of thousands of jobs. The industry was already reeling, facing slowing exports to China and Russia. In fact, it was a surge in demand from EU countries that allowed Nissan to weather recent economic storms. Whether it will continue to be able to manage slowing demand in Asia without free access to the EU is very much an open question.
For other pro-Brexiters in Sunderland, “The E.U. is a mystery…” “We’ve never heard about it up here”, the Times again quotes a resident as saying. Even those who seem aware of potential job losses were confident: “No, I can’t see them cutting off ties”, one resident was quoted as saying of Nissan. For yet another, “Give Brexit a chance. It can’t get worse than what’s been going on already.”
But it can. And of all places, Sunderland should know that it can. Its economic fortunes were in many ways saved in 1986 by a Japanese company that only exists in Sunderland to produce products to deliver offshore. By failing, once again, to connect the dots between the global economy and individual lives, Sunderland risks repeating the past. One hopes for those who commented to the Times that Mr. Cameron’s successor will not need to make a fated journey to the Nissan plant to announce its closure, as Mrs. Thatcher did at Sunderland shipyards three decades ago.
***This Talking Trade blog post was written by Michael Moore-Jones and Dr. Deborah Elms, Asian Trade Centre, Singapore***